James Falla Debt Solutions

Debt Solutions

When personal debt gets out of control, it can have very serious repercussions. The pressure of a debt problem can effect your health,your relationships at home and your work. For this reason it is very important to get a solution in place as soon as possible.

The first thing to remember is that you are not alone. 1000s of people in the UK struggle with debt problems every day. People with debt problems tend to keep them to themselves. It is embarrassing and worrying and something you definitely do not want to discuss with your friends, let alone your family. This is why you do not often hear of anyone else with the same problem as you. However, let me tell you, you are definitely not alone.

If you find yourself with a debt problem, it may sound silly but the first thing you need to do is talk to someone about it. As with many things, once they are out in the open, a solution can be found. I always suggest that you should speak to someone who is close to you. However, it is also very important to speak to an expert in resolving debt problems. Believe me, there are solutions for dealing with debt. They may not be a walk in the park, but when they are properly explained they will immediately give light at the end of the tunnel. When you can see that light, you will be able to think more clearly and you will be on the road to resolving the problem.

I have commented briefly on the different ways to resolve unsecured debt problems below. This is certainly not an exhaustive discussion and you should always make sure that you speak to an expert before deciding on which route to take.

1. Consolidation

Very often, this is the first solution to which people turn to try to resolve their debt problem. In a nut shell, consolidation means taking a loan to pay off multiple smaller debts thus leaving yourself with a single large debt with a lower manageable monthly payment. This can be done either by taking an unsecured loan or releasing a lump sum of equity from a property.

Consolidation can resolve a debt problem if it is in its early stages. However, if you are considering consolidation, please consider the following:

Firstly, after you consolidate, you must change your spending habits. Cut up the credit cards and cancel the accounts. Live within your budget and stop spending what you do not have. If you do not do this, then the balances on your cards will start to creep up again and before you know it you have new card payments on top of the consolidation loan payment. You will find yourself back where you started but with twice as much debt.

Secondly, most people go head long into consolidation because the temptation of reduced monthly payments is very strong. However, make sure the new consolidation loan payment is affordable in your monthly budget. Even if the consolidation loan payment is lower than your previous multiple payments, if you can’t afford to pay it within your budget, then you will continue to use the cards and your overdraft to supplement your income and before you know it, you are back in the same situation again.

2. Informal Repayment Plan

Where your debt is typically less than £15,000, a sensible option might be to consider an Informal Repayment plan. This is an agreement with each of your creditors to reduce the amount you pay to each of them to fit within a budget you can afford. The advantage of such a plan is that you start to repay your creditors in a sensible managed way and stop making things worse by robbing Peter to pay Paul.

Although on the face of it, this solution sounds good, there are some significant drawbacks. Firstly because you still have to pay 100% of your debt back, it is likely to take you much longer to repay your debts than would otherwise have been the case. Also, the solution is not legally binding and as such, there is no guarantee that further interest charges will be frozen. It is also possible that your creditors will take further action against you such as an application for a County Court Judgement or Charging Order against your property.

3. Individual Voluntary Arrangement (IVA)
		The IVA is the first of two formal (legally binding) ways to resolve a debt problem. It is normally considered where total unsecured debt exceeds £15,000. The IVA allows you to make an offer to settle your debts with your creditors over a 5 year period. Once the IVA is accepted by the creditors, they must freeze further interest and charges by law. You make just one monthly payment based on what you can afford. At the end of 5 years, whatever debt is outstanding will be written off legally thus leaving you debt free to turn over a new leaf. If you are a homeowner, you will almost certainly have to release equity from your property as part of the IVA deal.

4. Bankruptcy

If you have little or no income in order to make any kind of monthly payment to your creditors and no definite view as to when this might change, then it is possible that the only way you can solve your debt problem for good is to declare Bankruptcy. In doing this, the Court will take away from you the responsibility of paying your debts. You will normally be bankrupt for 12 months. After this time, any unpaid debt will be written off and you will be able to turn over a new leaf, debt free.

Declaring bankruptcy does not mean that you will get away without paying anything back at all. If you can afford to do so, the Court will ensure that you make payments towards your debt for up to 3 years.

If you are a homeowner, then the significant downside to bankruptcy is that the Court has the right to take your home from you and sell it for the benefit of the creditors. For this reason, if you own a house, you MUST ensure you take further professional advice before deciding to declare yourself bankrupt!

If you rent your property and have no valuable assets (e.g. an expensive car) it is very unlikely that the Court will require you to give up any of your goods.